In today’s evolving financial landscape, we are witnessing unprecedented shifts that are reshaping borrowing patterns and access to finance. This has been prompted by a high inflationary environment and surging interest rates, which is putting a squeeze on household and consumer finances.
At the same time, we have seen mainstream lenders raise their rates and, in some cases, withdraw their products from the market altogether.
This creates an opening for specialist lenders to move into the mainstream and really demonstrate their value. In turn, it also represents a huge opportunity for brokers, who are going to be approached by more people who have been turned away by mainstream lenders.
In the short-term, high inflation and the cost of living crisis is having a profound impact on household finances and mortgage repayments. Earlier this year, it was reported that more than 700,000 people in the UK were falling behind on their mortgage payments, and with over a million customers coming to the end of their fixed-rate mortgages this year, this figure is expected to increase .
This will undoubtedly create a larger cohort of consumers with more complex borrowing needs, many of whom will think they are unable to achieve their homeownership goals after being turned away from high-street banks and left with no other alternative.
As a result, the demand for specialist lending is only set to grow as this market can cater to these individuals. With a manual approach to underwriting, specialist lenders are able to assess customers on a case-by-case basis, providing solutions based on real customers needs, not outdated criteria and automated processes.
While affordability challenges are being felt by all in some shape or form, potential first-time buyers bear a unique brunt, with their dream of homeownership now being overshadowed by the struggle to accumulate a substantial deposit now that the Help to Buy scheme has come to an end.
The good news, however, is that schemes such as Deposit Unlock are surfacing in the market, designed to help aspiring homeowners with minimal deposits who are struggling to buy a new home.
Economic uncertainty is only part of the shifting financial landscape puzzle. Workplace and societal shifts play another large part. The emergence of contractors, individuals with intricate credit requirements, and rise of self-employed workers are part and parcel of this complex lending landscape.
According to the Association of Independent Professionals and the Self-Employed (IPSE), there are 154,000 more self-employed than this time last year, with the total figure in the UK standing at 4.4 million.
These groups of workers often encounter challenges when it comes to securing a mortgage, because their criteria does not fit what is deemed the ‘norm’, even if they have their finances in order.
This is often because these lenders use computer-based underwriting processes which won’t necessarily have the skills to manually interpret accounts to accurately understand these customers’ credit histories.
As the DNA of our workforce continues to change, signposting will be vital. A significant proportion of self-employed borrowers will be unaware that the specialist mortgage market even exists. With this part of the labour market expected to grow, there is a clear opportunity for brokers and lenders alike.
As the specialist lending market caters to an increasingly diverse customer base, the importance of delivering fair value is more important than ever, especially in light of the recent implementation of Consumer Duty.
The Financial Conduct Authority’s (FCA) Consumer Duty, effective from 31 July, introduced new rules for both lenders and brokers setting higher and clearer standards of consumer protection across financial services, and requiring firms to put their customers’ needs first.
For lenders, this means ensuring products are aligned to target markets and offer fair value to disenfranchised customer groups, while for brokers it means even closer collaboration with lenders and distributors to keep up to date with product innovation and changes in an ever-evolving market.
In a world marked by economic uncertainties and evolving social norms, the specialist lending market has the potential to meet the changing needs of borrowers, both now and in the future, to help them achieve their homeownership dreams.
The specialist market will play a significant role in supporting those who do not fit the vanilla criteria, and it’s our job as an industry to educate them on the options available. Lenders and brokers alike must embrace this growing cohort of customers with open arms and ensure they are well-equipped to serve them.
Steve Seal is chief executive of Bluestone Mortgages
